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comment: THE FOLLOWING ARTICLE WAS WRITTEN TWO DAYS PRIOR TO PRESIDENT OBAMA’S ANNOUNCEMENT OF HIS 2014 BUDGET, AND PREDICTED MOSTLY WHAT HE PROPOSED RE. CUTS IN SOCIAL SECURITY-MEDICARE AND RESTORATION OF CUTS IN DEFENSE SPENDING. THE ARTICLE SUMMARIZES THE HISTORY OF DEFICIT CUTTING FROM OBAMA’S ORIGINAL PROPOSAL OF A ‘GRAND BARGAIN’ IN SUMMER 2011 TO HIS CURRENT ‘COLLUSION’ WITH HOUSE REPUBLICATIONS TO CUT SOCIAL SECURITY AND RESTORE SEQUESTERED DEFENSE SPENDING CUTS.

ON APRIL 10, PRESIDENT Obama released his formal budget for Fiscal 2014 beginning this October. Liberals should not act shocked and surprised: Obama’s repeated offers to cut Social Security cost-of-living adjustments, and other yet undefined Medicare measures, are a continuation of his practice and approach for the past two years.

The budget will usher in the final stage of negotiations over the proposed deficit cuts — Austerity American Style — that began with the recommendations of Obama’s Deficit Cutting Commission, referred to as the Simpson-Bowles report, that was made public in November 2010.

The Simpson-Bowles Commission — chaired by arch-conservative retired Senator Alan Simpson, and Bill Clinton’s chief of staff, now investment banker Erskine Bowles — proposed an approximate $4 trillion cut in U.S. deficits and debt for the subsequent decade. Their report has been the ‘template’ for deficit cutting negotiations ever since.

Issued around the time the Teapublicans took over the U.S. House of Representatives in late 2010, the report was offered by the Obama administration as the basis for negotiating a “grand bargain” of $4 trillion in deficit cuts in summer of 2011. The $4 trillion target was agreed by virtually all parties in Congress and the administration at that time — and ever since. The only difference was, and remains, “the mix:” how much in spending cuts vs. how much tax revenue hikes; how much to cut defense spending vs. how much social programs; and how much to tax the wealthiest 2% vs. the middle class.

In June 2011, Vice-President Biden was assigned by Obama to begin negotiating the basis for the “grand bargain.” He and House Speaker John Boehner attempted and failed to do so, even though Biden had offered a package of 87% spending cuts to only 13% tax hikes — even more onerous than Simpson-Bowles’ recommended 75%-25% mix.

Obama then took over negotiations with Boehner directly in July 2011. He unilaterally — i.e. with no counter concession from Boehner — offered to cut Social Security and Medicare by $700 billion to entice Boehner and House Teapublicans into a deal. Offering big cuts in Social Security-Medicare has thus been a bargaining tactic by Obama, the “carrot” dangled to the Teapublicans to entice them to agree to a $4 trillion Grand Bargain from the very beginning.

Boehner and the Teapublicans did not bite on Obama’s grand bargain offer in July 2011, however. They held firm and demanded an “all spending cuts” agreement in exchange for raising the federal government the debt ceiling in August 2011. They got their way. Obama and the Democrats caved in on all his demands by August for some tax revenue hikes. All they got from the August 2011 debt ceiling deal was agreement from the Teapublicans not to raise the debt ceiling issue again until after the November 2012 elections. Very convenient for the president and the Democrats; not so for the rest of us since the August deal involved $1 trillion in immediate social spending only cuts, mostly in public education, with another $1.2 trillion in spending only cuts — the “sequester cuts” — that would take effect on January 1, 2013.
As part of that August 2011 $2.2 trillion deal, Congress was given the option to cut even more than the $1.2 trillion ‘sequester’ part of the total. A special committee of Congress (the so- called Supercommittee of House and Senate leaders) was established and given the option to cut more than the $1.2 trillion by year end 2011. The Supercommittee, however, not surprisingly decided to “kick the can down the road,” shelvingf all deficit cutting during the 2012 election year.
Instead, in 2012 both parties and their candidates talked about economic programs neither had any intention of introducing. Regardless of who won the November 2012 election, the Simpson- Bowles “template” was waiting in the desk top drawer, to be resurrected after November 2012. And that’s just what happened: Within days following the election, Obama immediately offered $340 billion in “entitlement” program cuts in his attempt once again to resurrect the grand bargain negotiations.

Phony Fiscal Cliff: It’s the Tax Cuts, Stupid!

But the Teapublicans and big corporate interests, in the form of the Business Roundtable in particular — the biggest and most influence U.S. corporate lobbying group, composed of CEOs of the largest corporations — were neither interested in a “grand bargain” at that time. The Business Roundtable preferred to focus initially only on the Bush tax cuts that were also scheduled to expire January 1 — not the “sequestered” $1.2 trillion in spending cuts also scheduled to take effect on January 1, 2013.

The Bush tax cuts — more than 80% accruing to wealthy households and investors — were far more important to them than the spending cuts. Their primary goal has always been to protect and extend the Bush tax cuts; cutting spending and deficits has always been secondary, and the cuts should be at the expense of social programs.

The Bush tax cuts amounted to $4.6 trillion for the coming decade, according to the Congressional Budget Office. The CBO’s projected deficits for the coming decade, should the Bush tax cuts be totally repealed, amounted to only $2.5 trillion. Extending the tax cuts meant the projected deficit would amount to around $7 trillion. To borrow the popular phrase: It’s not about deficits; it’s the Bush tax cuts, stupid!

Following last November 2012’s elections, the Teapublicans initially wanted all the Bush cuts extended permanently, but the Business Roundtable wanted some kind of a settlement on the tax issue first. Without that happening, the Roundtable’s even bigger objective of a major revision of the entire tax code, including cuts in the top rate of corporate taxes from 35% to 26%, already working its way through Congress, could not proceed. To preserve as much of the Bush tax cuts as possible the issue had to be decoupled from the sequester. Furthermore, the Bush tax cuts had to be resolved before the tax code could be revised and corporate tax rates reduced.
Following the November elections, the Roundtable therefore blocked with Obama and against the House Teapublicans. To get the public on board, the media spin given to the Bush tax cuts extension was labeled the “Fiscal Cliff.” Although the media included the sequestered spending cuts as part of the “Fiscal Cliff,” that issue was separated tactically by both the Roundtable and Obama weeks before January 1, 2013.

With the assistance of House Speaker Boehner, Obama plus the Roundtable prevailed over the Teapublicans. It was touch and go, with Teapublican leaders like Ryan and Cantor wavering and striking a neutral pose to protect their ultra-conservative credentials. But no doubt in the end, campaign finance spending by the Roundtable big corporations prevailed and the Obama- Roundtable-Boehner nexus were able to swing a sufficient number of House Republicans to get a “tax deal” on January 1, 2013.

And how sweet a deal it was. Only $60 billion a year of the deficit was reduced, impacting less than 0.7% of the wealthiest households — far fewer than Obama’s promised 2%. Moreover, as part of the deal, the Alternative Minimum Tax was permanently repealed (amounting to about $100 billion a year tax cut benefit to the wealthy), the Inheritance Tax was cut even more generously than under Bush, and all the other Bush tax cuts were made permanent. No need to extend them ever again.

The total cost in revenue loss and therefore deficit increase that remained was $4 trillion over the coming decade. Ironically, that’s just about what the Simpson-Bowles commission recommended in deficit reduction. The deficit for the coming decade was thus raised from $2.5 trillion to now about $7 trillion as result of the Bush tax cut deal — billed as “avoiding the Fiscal Cliff” — of January 1, 2013. Now the attack on spending could begin in earnest once again, and focusing on entitlements in particular.

As part of the January 1 deal, the sequestered additional $1.2 trillion in spending cuts were postponed for two more months, until March 1, 2013. In signing the deal on January 2, Obama declared that more tax revenue hikes would have to be negotiated in future deals. No doubt he and Democrats believed that the March 1 date would put pressure on the Teapublicans to compromise on more tax hikes in exchange for avoiding the approximate $500 billion in defense spending cuts that were part of the sequestered $1.2 trillion going into effect on March 1.

There was also the March 27, 2013 date when the Federal government would run out of money to pay its bills. Surely, the Teapublicans didn’t want to get blamed again for that fiasco, as they had been in the past? And thereafter there was the May 18, 2013 revisiting of the debt ceiling extension. Obama undoubtedly believed that somewhere along this line the Republicans would give him the token tax hikes he needed as cover to agree to his massive cuts in Social Security, Medicare and Medicaid he was always willing to make as part of a Grand Bargain.

But the Teapublicans again called his bluff. They let the sequestered spending cuts, including the defense cuts, go into effect on March 1, 2013. They then agreed to fund the government past March 27 and suggested as well the debt ceiling would not be an issue. This left Obama with no bargaining leverage for insisting on tax revenue hikes. His answer has been his increasingly desperate re-offering of big Social Security and Medicare cuts in recent weeks, some of which appear in part in his April 10 budget. That will serve as a base from which he will then agree to even further cuts in subsequent negotiations with Teapublicans in the House (and Roundtable CEOs in the background).

Some Key Strategic Questions

The question is why have the Teapublicans agreed to the token January 1 tax hikes? Why did they agree to allow the $1.2 trillion sequestered cuts, including defense spending, go into effect? Why did they not engage in brinksmanship again on March 1 or March 27, unlike wqhat they did in August 2011? And why will they not go to the brink again on the debt ceiling issue when it arises once more in May?

The answer to the first question is that they got a tax deal they simply couldn’t refuse on January 1, and one which their big corporate campaign benefactors, the Business Roundtable, wanted. After having blocked with Obama prior to the January 1 deal, however, the Roundtable has since shifted gears and adopted in total the Teapublicans’ position on subsequent spending cuts.
In February 2013, the Roundtable came out with its position paper on the matter of sequestered cuts and entitlement spending. It proposed to cut the Social Security COLA (cost of living adjustment), introduce a means test for Medicare, raise the eligibility age for both Medicare AND social security to 70, and convert Medicare into a voucher system in 2022. That’s exactly the Teapublican-Paul Ryan program.

With big corporate interests now in their corner firmly with regard to entitlement cuts as the primary focus of deficit cutting, why should the Teapublicans agree to any further tax hikes on the rich? And with the Roundtable and CEOs now firmly on their side, and the tax cuts successfully decoupled from the spending cuts, why should the Teapublicans go to the brink over shutting down the government on March 27? By March 1 they were already almost three- fourths of the way to the $4 trillion deficit target, with a total of $2.8 trillion in spending cuts and token tax hikes!
By letting the March 1 sequestered cuts take effect, the Teapublicans in effect did to Obama on the topic of defense spending what Obama had the opportunity – but didn‘t take — to do to them on the topic of Bush tax cuts on January 1. Obama could have let all the Bush tax cuts expire January 1, and then reintroduced middle class tax cuts only on January 2. That would have put the Teapublicans in the position of having to vote down middle class tax cuts. But he didn’t, and settled for the paltry 0.7% hike on taxes on the wealthy, some of which will undoubtedly be reversed again, buried deep in the legislation, when the major tax code negotiations conclude later this year.

The Teapublicans, by allowing the sequestered defense cuts to take effect on March 1, can also always reintroduce legislation piecemeal later this year to restore many of the defense cuts.
It’s not surprising that Republican Senator, Lindsey Graham, and others in Congress, in recent weeks have offered “deals” amounting to another $1.2 trillion in deficit reduction. That number is not coincidental, as $1.2 trillion is now the remaining “target” number . Graham’s proposal is for $600 billion in Social Security and Medicare cuts and another $600 billion in unspecified tax revenues.

So why should Teapublicans precipitate a political crisis over the March 1 or March 27 deadlines? Why should they repeat the debt ceiling crisis on May 18? They’re winning hands down.

What Obama May Propose

Having agreed to decouple tax cuts on January 1 and having been outmaneuvered on March 1 and March 27, and with Teapublicans signaling there will be no debt ceiling crisis in May, Obama has been stripped of all his leverage points in bargaining. Obama has left only the option to offer even more Social security, Medicare and Medicaid cuts. And throughout March he continued to do so, once again unilaterally — not just offering again to cut COLA adjustments for Social Security but suggesting his willingness to confront big cuts in the $600-$700 billion range for Medicare and Social Security and more for Medicaid.

But Obama has planned all along to cut Social Security and Medicare. He made that clear in his signing of the Bush tax cuts deal on January 2, 2013, during which he stated: “Medicare is the main cause of deficits.” Again in his February State of the Union address, the president publicly noted he “liked the Simpson-Bowles” recommendations concerning Medicare cuts.

And what are those recommendations? Instituting a new $550 a year deductible for Parts A and B of Medicare, and providing only 80% coverage for Part A instead of the current 100% (which would require another $150-$300 a month in private insurance to cover the remaining 20%, much like Part B now). That together amounts to another $195-$350 taken out of monthly Social Security checks, when the average for social security benefit payments is only $1100 a month today.

In other words, Medicare benefits will not be cut – but if seniors want to maintain current levels of benefits they’ll have to pay even more for them. Alternatively, they can choose to have fewer benefits and not pay more. It’s all about rationing health care, just as Obamacare for those under 65 is essentially about rationing — as were Bush’s proposals to expand health savings accounts (HSAs) and Bill Clinton’s health maintenance organization (HMOs) solution.

With only $1.2 more to cut in deficit spending to reach the Simpson-Bowles $4 trillion target, and Obama offering again his $600-$700 billion enticement in entitlement spending cuts, a deal is closer than ever before. Watch therefore for the full $600 billion in Social security, Medicare and Medicaid to take effect, the effective date of the changes to be backloaded in later years of the decade and certainly not before the 2014 midterm elections.

Expect defense spending cuts of no more than half the $500 billion proposed in the sequester, and nearly all of which will be from withdrawals from Afghanistan and Iraq operations, not from equipment spending. After 2014, most will be recouped as defense spending on naval and air force equipment and operations will ramp up for the shift of U.S. military focus to the Pacific. They Army brass haqs had its land wars in Asia; now it’s the turn of Navy and Air Force.

That leaves only a “token” tax revenue increase of about $200 billion over the coming decade, or a paltry $20 billion a year, which will come in difficult to estimate phony “loophole” closings. Major cuts in corporate taxes later in 2013 will not be factored into the Grand Bargain $4 trillion official calculations. In addition to big cuts in the top corporate tax rate, look as well for multinational corporations’ tax breaks and tax forgiveness on the $1.4 trillion they are presently sheltering in offshore subsidiaries. Of course, small-to-medium business will be thrown yet another tax cut bone to buy into the deal. In exchange, the middle class will pay more in terms of limits on deductions and exemptions.

Grand Collusion

In retrospect over the past three years, and especially since November 2012, the Grand Bargain looks less like a bargain and more like a “grand collusion” among the various parties — Teapublican, Big Corporate, Obama, and the pro-corporate wing of Democrats in Congress that have had a stranglehold on the Democratic party since the late 1980s.

This is not the Democratic Party of your grandfather that agreed to introduce Social Security in the 1930s and that proposed Medicare in the 1960s. This is the Democratic Party, and the Democratic President, that has agreed with Republicans and Corporate America to begin the repealing in stages of these very same programs — programs that are not “entitlements” but are in fact deferred wages earned by Americans over the decades, are now being “concession bargained” away.

Not content with concessions from those workers still in the labor force, capitalist policymakers are intent on concessions on social wages now coming due in the form of Social Security and Medicare benefits. It’s a charade from Simpson-Bowles to the present.

What should be done? Writing letters to Congress won’t change anything. What is now necessary is to begin the formation nationwide of Social Security-Medicare Defense Clubs. After all, that’s how Social Security started in the first place. Neither party proposed it in the 1930s initially.

In fact, Roosevelt initially publicly advocated that Social Security should not be part of the New Deal. A grassroots protest organized by the clubs forced him and the Democrats to reverse this position just before the midterm 1934 elections and support the proposal for Social Security. Now it’s time to reform the clubs to defend Social Security — and the first action should be to call for a million person march on Washington to reverse whatever cuts are surely ahead.

Jack is the author of Obama’s Economy: Recovery for the Few (2012), which provides a history of deficit cutting in the US and predictions of its impact. His blog is jackrasmus.com. For a video presentation on Social Security and Medicare given recently to the Progressive Democrats of America, see his website at http://kyklosproductions.com/video/130228_PDA-forum_rasmus/.

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ABOUT A MONTH AGO, ON MARCH 6, THIS WRITER WAS INTERVIEWED BY RUSSIA RADIO TODAY ON THE MARCH 1 SEQUESTERED SPENDING CUTS AND CONDITION OF THE US ECONOMY. THE FOLLOWING IS THE TRANSCRIPT OF THAT INTERVIEW, WITH RADIO HOST, CARMEN RUSSELL-SLUCHANSKY.

Sluchansky: Jack, thank you so much for coming back on the program.

Rasmus: My pleasure.

Sluchansky: Absolutely my pleasure! So, a lot of people are talking about the impact that this is going to have, particularly the economic impact. And it seems that a lot of people think that this really is not that big of a deal. Surely we might see delays awaiting for our tax returns, there may be some furloughs for government employees and so on. Is this going to impact the rest of us?

Rasmus: Well, I think we may be underestimating the impact because it’s not just the dollar value here, it is the impact on a consumer and business confidence and it is going to play a role as well. And the economy is in a very-very fragile state right now. As you know last quarter it pretty much flattened out, the fourth quarter of 2012. And the question of whether it will robustly snap back from that very fragile situation of last year – some say it was a one-time aberration because the government spending collapsed and inventories collapsed and therefore they will snap back.

But if you look elsewhere, consumer spending and confidence, except for auto and apartment spending, looks very fragile. And we won’t know until the end of March whether the first quarter is another very weak quarter. And remember, we always underestimate the decline in GDP because we underestimate the inflation, and therefore real GDP is larger. So actually we had negative last quarter, and if the IMF and others are correct that this could have a 0.5% impact on the economy, then we may come in another almost flat quarter here.

So, I am not too convinced that this will have no effect, because this is not just a dollar-dollar effect, it is accumulative psychological effect on the economy. And talking about spending, the multipliers are larger for spending then they are for tax cuts. The Bush cuts didn’t stimulate the economy much, therefore when we took a little bit out of them on January 1, only $60 billion, it didn’t have much impact. But the payroll tax cut elimination did have a big impact. So, carrying through this first quarter, I’m not so sure this may not have a cumulative impact on the economy and keep us at a flat growth rate here.

At the very least the stock market doesn’t seem to be worrying very much at all, right? Does that mean anything?

The stock market follows the Federal Reserve and quantitative easing. If you remember, about a week ago the Fed minutes from its last meeting were reported and it looked like they may end QE or slow it down, and the stock market took a huge dive in a couple of days. And quickly the Fed rolled out its governors and they said – no, we are not really meaning that, and the stock market took off again. So the stock market is really keen after the free money from the Federal Reserve, the quantitative easing and whether that will continue. And all the indications are that it will.

On January 1 we had the Bush tax cuts expiring and the payroll tax cuts. That would have saved the Government over the next decade, if we just let them expire, $4.6 trillion. Because we only got $60 billion, $4 trillion are going to be added the deficit and the debt over the next decade. And I believe a big error was made by Obama and they are making another error right now.

What Obama should have done on January 1, was let it to go over the first fiscal tax cliff, and then reintroduce a middle-class tax cut only. But instead the Democrats and Obama just grabbed that miniscule $60 billion and settled the tax issue and allowed the Republicans to say – ok, now it’s only spending that we are going to talk about. And of course the sequester that just happened was a spending only bill.

So what happened is that the Republicans have flipped the whole strategy and have done what Obama should have and didn’t do on January 1. That is – they are allowing the defense cuts to go through, and Obama and the Democrats thought that they would never do that. Yes, they are allowing it to go through but in a few days or weeks they will turn around and put bills in Congress to restore the defense cuts only. So, what will be left is just spending cuts, which is what they want.

The economy is a psychological thing. You can’t just look at the numbers, dollar to dollar. What people perceive happening has an impact on their economic behavior. And I’m not so sanguine on the future prospects for consumption over the next six months with falling real disposable income going on, and now we’ve got rising gasoline prices and still have runaway healthcare costs etc, the impact on the average consumer is greater than people think.

Sluchansky: And also this is not helping to create those jobs, the jobs that everybody says we want to be creating in order to get us back to pre-crash levels of unemployment and so on. And I have to imagine this is going to seriously hurt that effort.

Rasmus: Yes, I think it does anything for job recovery. And you know, we have created 5 million jobs as the hype but if you look at it what do with those jobs pay, there was a recent study that was done, that showed that 60% of the jobs we lost since 2008 there are high-paying jobs, in other words $18 in hour and above. And 58% of the jobs we have created, these 5 million jobs that everyone is making this big hullabaloo about, are the various low-paying jobs between $7 and $13 in hour.

In the last quarter we had a big surge in credit, once again spending by consumers. You can’t keep that up. And consumers are still dragging their money out of their savings to finance spending. That’s not a long term sustainable situation. That’s why I predicted in my book “Obama’s Economy” and my prior book “Epic Recession” that we will not get a robust recovery, we are going to bounce along the bottom this growth rates between 0-1%. Sometimes we go up to 2%, sometimes we go are down to 0%. And that’s not really a real recovery, and that’s not enough to really do something about the labour markets.

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Obama’s bargaining strategy and tactics with regard to deficit cutting over the past three years have proven to be an unmitigated disaster. From the idea of seeking a ‘grand bargain’ with Teapublicans in the House of Representatives in 2011, to the debt ceiling and sequester deals of August 2011 that resulted in $2.2 trillion in spending-only cuts and no tax hikes whatsoever on the rich, to caving in on the so-called ‘Fiscal Cliff’ this past January 1 that resulted in taxing only the richest 0.7% and allowing $4 trillion in Bush tax cuts to continue permanently—Obama’s bargaining strategy and tactics have proven a case example of exactly what not to do in negotiations.

Obama’s first error was to believe that by offering hundreds of billions in entitlement cuts back in the summer of 2011 in exchange for revenue hikes that Republicans would agree to raise taxes a mere year before the 2012 elections. Obama and the Democrats subsequently further believed that by linking $1.2 trillion in sequestered spending-only cuts in August 2011, as part of the debt ceiling deal that Republicans would not allow $500 billion in sequestered defense spending cuts take effect and would agree to some tax hikes in exchange. Obama then made the error this past December thinking Republicans would discuss tax revenue proposals after they agreed to the minimal $60 billion in Bush tax cut extensions (aka ‘Fiscal Cliff’) on January 1, 2013. Or that Republicans would have to agree to some kind of tax revenue enhancement deal on March 1 when the sequestered defense cuts would take effect, or March 27 when the government ran out of money. But the Teapublicans proved him wrong in every one of these accounts. How and why did this all happen? And will Obama and the Democrats continue to get outmaneuvered in the coming final round of deficit negotiations that commences with Obama’s latest budget, to be announced on April 10?

Some Key Questions of Strategy

The question is why have the Teapublicans agreed to the token January 1 tax hikes? Why did they agree to allow the $1.2 trillion sequestered cuts, including defense spending, go into effect? Why did they not engage in brinksmanship again on March 1 or March 27, unlike they did in August 2011? And why will they not go to the brink again on the debt ceiling issue when it arises once more in May?

The answer to the first question is Teapublicans in the House got a tax deal they simply couldn’t refuse on January 1, a deal which their big corporate campaign benefactors, the Business Roundtable, wanted and helped engineer together with the Obama administration. They got to keep $4 trillion of the Bush tax cuts, which are now permanent and which include nice ‘sweeteners’ (i.e. further tax cuts) like no more Alternative Minimum Tax and an even more generous Inheritance tax than Bush himself had introduced.

However, after having blocked with Obama prior to the January 1 deal to push through token tax hikes on only the wealthiest 0.7%, the Roundtable has since ‘switched sides’ and adopted the Teapublicans position with regard to subsequent entitlement spending cuts.

In February 2013, the Roundtable came out with its position paper on the matter of sequestered cuts and entitlement spending. It proposed to cut the social security COLA adjustment, introduce a means test for Medicare, raise the eligibility age for both Medicare AND social security to 70, and convert Medicare into a voucher system in 2022. That’s exactly the Teapublican-Paul Ryan program. With big corporate interests now in their corner firmly with regard to entitlement cuts as the primary focus of deficit cutting, why should the Teapublicans agree to any further tax hikes on the rich? And with the Roundtable and CEOs now firmly on their side, and the tax cuts successfully decoupled from the spending cuts, why should the Teapublicans go to the brink over shutting down the government on March 27? By March 1 they were already almost three-fourths of the way to the $4 trillion deficit target, with a total of $2.8 trillion in spending cuts and token tax hikes. That leaves only $1.2 trillion to go!

By letting the March 1 sequestered cuts take effect, the Teapublicans in effect did to Obama on the topic of defense spending what Obama had the opportunity to do to them on the topic of Bush tax cuts on January 1 but didn’t take. Obama could have let all the Bush tax cuts expire on January 1, and then reintroduced middle class tax cuts only on January 2. That would have put the Teapublicans in the position of having to vote down middle class tax cuts. But he didn’t, and settled for the paltry 0.7% hike on taxes on the wealthy, some of which will undoubtedly be reversed again, buried deep in the legislation, when the major tax code negotiations conclude later this year. The Teapublicans, by allowing the sequestered defense cuts to take effect on March 1, can also always reintroduce legislation piecemeal later this year to restore many of the defense cuts.

It’s not surprising that Republican Senator, Lindsey Graham, and others in Congress, in recent weeks have offered ‘deals’ amounting to another $1.2 trillion in deficit reduction. That number is not coincidental. Graham’s proposal is for $600 billion in social security and medicare cuts and another $600 billion in unspecified tax revenues. $1.2 trillion is now the remaining ‘target’ number.

To repeat: Why should Teapublicans precipitate a political crisis over the March 1 or March 27 deadlines? Why should they repeat the debt ceiling crisis on May 18? They’re winning hands down.

What Obama May Propose

Having agreed to decouple tax cuts on January 1 and having been outmaneuvered on March 1 and March 27, and with Teapublicans signaling there will be debt ceiling crisis in May, Obama has been stripped of all his leverage points in bargaining. He has no ‘stick’, only more ‘carrots’ to offer and his opposition knows it. Obama has left only the option to offer even more social security, medicare and Medicaid cuts. And throughout March he has continued to do so unilaterally once again. Not just offering once again to cut COLA adjustments for social security but to suggest his willingness to confront big cuts—in the $600 to $700 billion range—for medicare and social security and more for Medicaid. Even more specific reductions will be forthcoming in weeks to come.

But Obama has planned all along to cut social security and Medicare. He made that clear in his signing of the Bush tax cuts deal on January 2, 2013, during which he stated: “Medicare is the Main Cause of Deficits”. And again, in his February State of the Union address, Obama publicly noted he ‘liked the Simpson-Bowles’ recommendations concerning Medicare cuts.

And what are the Simpson-Bowles recommendations for Medicare cuts?

A new $550 a year deductible for Parts A and B of Medicare and provide only 80% coverage for Part A instead of the current 100% (which would require another $150-$300 a month in private insurance to cover the remaining 20%, much like Part B now). That together amounts to another $195-$350 taken out of monthly social security checks to cover, when the average for social security benefit payments is only $1100 a month today. In other words, Medicare benefits will not be cut. Its just that if seniors want to maintain current levels of benefits they’ll have to pay even more for them. Alternatively, they can choose to have fewer benefits and not pay more. It’s all about rationing health care, just as Obamacare for those under 65 is essentially about rationing—as were Bush’s proposals to expand health savings accounts (HSAs) and Bill Clinton’s health maintenance organization (HMOs) solution.

In his typical bargaining approach of ‘let’s make a unilateral offer and see what the Teapublicans do’, in recent weeks Obama has again unilaterally offered to reduce social security COLA increases that will take more than $230 billion out of the pockets of seniors. He has also proposed to introduce a means test for the wealthy, which Teapublicans will begin to extend down to the middle class. As for Medicare, watch for the Simpson-Bowles recommendations in some form to appear, likely scaled in over time. If not in the budget itself, then surely in negotiations that follow. Readers should also note that Obama last week announced higher payments to medicare health providers, while simultaneously planning in his budget cuts for seniors. But Medicare ‘cuts’ will not be mandated benefit reductions. Instead, seniors will have to pay more for the benefits they have, or opt for lower benefit coverage. Social Security Disability recipients will be also significantly impacted by the forthcoming proposals. And Republican state governors will be permitted to reduce their spending in part on Medicaid. And of course, almost certainly there will be the changes to social security: reduction of cost of living adjustments, means testing, and a raising of the eligibility age at least to 67 and later possibly even higher.
With only $1.2 more to cut in deficit spending to reach the Simpson-Bowles $4 trillion target, and Obama offering again his $600-$700 billion enticement in entitlement spending cuts, a deal is closer than ever before. Watch therefore for the full $600 billion in social security, medicare, and Medicaid to take effect, the effective date of the changes to be ‘backloaded’ in later years of the decade and certainly not before the next midterm elections in 2014.

Expect defense spending cuts of no more than half the $500 billion proposed in the sequester, and nearly all of which will be from withdrawals from middle east (Afghanistan, Iraq) operations and not equipment spending. After 2014, most will be recouped as defense spending on naval and air force equipment and operations will ‘ramp up’ for the shift of US military focus to the pacific. The Army brass had its land wars in Asia; now it’s the turn of Navy and Air Force in the pacific.

That leaves only a ‘token’ tax revenue increase of about $200 billion over the coming decade, or a paltry $20 billion a year, which will come in difficult to estimate phony tax ‘loophole’ closings. Major cuts in corporate taxes later in 2013 will not be included or ‘calculated’ in the grand bargain $4 trillion deal. In addition to big cuts in the top corporate tax rate, look for multinational corporations’ tax breaks and tax forgiveness on the $1.4 trillion they are presently sheltering in offshore subsidiaries as well. And of course small-medium business will be thrown yet another tax cut bone to buy into the deal. In exchange, the middle class will pay more in terms of limits on deductions and exemptions.

In retrospect over the past three years, and especially since November 2012 elections, the ‘grand bargain’ looks less like a bargain and more like a ‘grand collusion’ between the various parties—Teapublican, Big Corporate, Obama, and the pro-corporate wing of Democrats in Congress that have had a stranglehold on the Democratic party since the late 1980s.

This is not the Democratic Party of your grandfather that agreed to introduce Social Security in the 1930s and that proposed Medicare in the 1960s. This is the Democratic Party, and the Democratic President, that has agreed with Republicans and Corporate America to begin the repealing in stages of these very same programs—programs that are not ‘entitlements’ but are in fact ‘deferred wages’ earned by Americans over the decades that are now being ‘concession bargained’ away without any say or input. Not content with concessions from those workers still in the labor force, capitalist policymakers are intent on concessions on social wages now coming due in the form of social security and medicare benefits.

It’s not a grand bargain; it’s a charade and a ‘grand collusion’ from the very beginning from Simpson-Bowles to the present.

What Should Be Done

Writing letters to Congress won’t change anything. What is now necessary is to begin the formation nationwide of ‘Social Security-Medicare Defense Clubs’. After all, that’s how Social Security started in the first place. Neither party proposed it in the 1930s initially. In fact, Roosevelt initially publicly advocated Social Security should not be part of the New Deal. A grass roots protest, organized by the clubs forced him and the Democrats to reverse this position just before the midterm 1934 elections and support the proposal for Social Security. Now it’s time to reform the clubs to defend social security. And the first action should be to call for a million person march on Washington to reverse whatever cuts are surely forthcoming in the weeks ahead.

Jack Rasmus

Jack is the author of ‘Obama’s Economy: Recovery for the Few’, 2012, which provides a history of deficit cutting in the US and predictions of its impact. His blog is jackrasmus.com. For a video presentation on social security and medicare given recently to the Progressive Democrats of America, see his website at http://www.kyklosproductions.com/videos.html.

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